Tax on Rental income

Hi,

I need clarification..

If I'm a private individual with one IP.. (1) is the total rent for the year added to my earned income - then taxed at the marginal rate?...or

(2) is it assessed seperately..ie income less expenses..in a seperate tax return?

What is the rate of tax on rental income?...if scenario two applies?

Thanking you..
 
Yes, you will add the rental income to your earned income, bank interest, dividents etc.

Then you will add the deductions in the appropriate section, where you will claim for your interest, PM expenses, depreciation and all other related property expenses.

So you will only pay extra tax if the rent exceeds the expenses. Otherwise your income will be reduced by the shortfall.
Marg
 
That's how I see it, marg4000.

If you earn $40k from your employed job and 40k form rental income, you have earned at total of 80k.

However when you deduct from your income deductions like, interest, Body corp, insurance and those lovely non cash deductions , Depreciation, improvements, and to some degree borrowing costs spreed over five years, you may well bring your Total Taxable imcome down to 30K.

It will be the 30k that your tax margin will be caculated on.

Hope that makes sence, it's way past my bed time... :eek:
 
rental income tax

Thanks everyone..much obliged.

also,
is it true that any renovation /extension be written up as repairs on the receipts?

Thanks
 
is it true that any renovation /extension be written up as repairs on the receipts?
No. And from the wording of the question you perhaps understand the difference between a repair and an improvement.

Here's my understanding which is only as an participant so should nit be relied on.

A repair brings something back to the state where you acquired the asset or to where you last improved it. If you bought a property which had been newly painted and some years later had to paint it again that would be a repair and so claimable in the year the cost was incurred. If you bought a property which needed painting and painted it when you bought it that would be an improvement so would have to be depreciated.
 
[Darryl Kerrigan]

What is it with investors and tax fraud?

[/Darryl Kerrigan]

so the motto of the story is to buy the property, rent it out in what ever condition for a couple of years, then paint it, then claim the deduction as a repair expense.

Hey it the paint was in good condition when i bought it:D

Theres always methods around anything, whoops did i say that.
 
I can't help thinking, as I read in between the lines, that so many investors or soon to be investors don't see the big picture.

How much tax do some people pay, $15,000, $20,000 40,000, I don't know ??? . as I paid no tax last year, and only about $1500 the year before.

If you own a bunch of Ip's you'll just about get all your tax back any how. Remember all those lovely non cash deductions. Something Kerry Packer once said

I am not evading tax in any way, shape or form. Now of course I am minimizing my tax and if anybody in this country doesn't minimize their tax they want their heads read because as a government I can tell you you're not spending it that well that we should be donating extra.
Transcribed from the in-memoriam 2006 television show The Big Fella: The Extraodinary Life of Kerry Packer

John.
 
Anyhow we should be rewarded for houseing millions families.

Could you imagin the cost to the country if the government had to house all the families who havn't bought their own homes. Repairs, maintenace, managment, dozens of new government portfolios, new commisions, and don't forget the cost to buy the properties as well.

We investors are a cheap cop out for the country !!!! and they should also bring out the red carpet and applaud us, when we visit the ATO :D:D:D
 
rental income - tax

I thank you all for your comments..forgive me if I seem 'geedy'...I'm not looking to 'avoid' just 'minimise'...and from what I've seen of all the investor forums around, minimisation seems to be quite popular and readily advised on.

the line between 'repair & replace' and 'improvement' can be a bit blurry at times - to a novice.....if I have a fireplace that's been blocked up and not being used, and decide to restore it for use...is that r & r or improvement?

or...an existing sunroom where the floor's all wonky and the external wall is deteriorating...if I decide to replace the flooring, which could mean demolishing the said wall.....and then extend the floor/walls /roofline to create a bigger better sunroom......then that's what?....r & r plus an improvement?....or just an improvement.? Just wanting to get my facts straight..

Cheers all
 
the line between 'repair & replace' and 'improvement' can be a bit blurry at times - to a novice.....if I have a fireplace that's been blocked up and not being used, and decide to restore it for use...is that r & r or improvement?

That's considered a capital improvement. And BTW, I don't think that "repair" and "replace" are not the same thing.

or...an existing sunroom where the floor's all wonky and the external wall is deteriorating...if I decide to replace the flooring, which could mean demolishing the said wall.....and then extend the floor/walls /roofline to create a bigger better sunroom......then that's what?....r & r plus an improvement?....or just an improvement.? Just wanting to get my facts straight..

Cheers all

Second example is also an improvement. You bought the property in its current state. You can improve & renovate whatever you like now but you can only depreciate the works at 2.5% p.a. However, say you pay for a shmick new extension and 8 years on the floor collapses (right after the building guarantee runs out, wouldn't you know it?). Replacing the floor could be claimed as a repair.
 
so the motto of the story is to buy the property, rent it out in what ever condition for a couple of years, then paint it, then claim the deduction as a repair expense.
Because painting has to be re-done periodically, my understand is that it's maintenance and always immediately deductible.
the line between 'repair & replace' and 'improvement' can be a bit blurry at times - to a novice.....
No, nearly everything you mentioned would be classed an improvement. A repair just restores things back to original condition. Any change is usually an improvement. Here are two articles (of many) that exist to help you figure out the difference:

ATO (from REIV website) - blowed if I could find it on ATO website, which has worst search function I've ever encountered :rolleyes:

House of Wealth
 
sorry to hijack but suppose you purchased an IP with cash.

obviously any rental would be income, and naturally you'd get taxed the tax bracket you are in,

however, most people can offset interest on the loan charges against the rent,

how would you minimise any tax on rental income if you have a property purchased without finance?
 
suppose you purchased an IP with cash.
You can do that???? :confused:

:D

Seriously, I can't imagine ever having enough cash that I'd invest unleveraged. The opportunity cost of all that lazy equity would kill me. At the very least, buy it with an 80% loan, and have 80% cash sitting in the offset, so you don't pay any interest when you're not using that cash, but can withdraw it - for private or investment purposes - at any time, and preserve the deductibility of loan interest.
 
I can't help thinking, as I read in between the lines, that so many investors or soon to be investors don't see the big picture.

How much tax do some people pay, $15,000, $20,000 40,000, I don't know ??? . as I paid no tax last year, and only about $1500 the year before.

If you own a bunch of Ip's you'll just about get all your tax back any how. Remember all those lovely non cash deductions. Something Kerry Packer once said



John.


"newbie investors cant see the big picture...." I think it comes with time and experience. We can read all the theory we like but it will become a lot clearer to us how things work as the years go by and we see it put into practice. I'm looking forward to the journey :)


I cant understand some people.. I often hear people at work, some of them over 50 who constantly complain about being taxed so heavily. They dont seem to realise that there is a way around it, and that you dont have to pay 40% of your hard earned money in tax to the government every fortnight. I remember one guy also commented about how he will have to work till he is 67 now because the age of retirement is not 65 anymore. "oh no the governments making me work another couple of years"

edited to say. i think one time i commented about the fact that you didnt have to pay so much tax if you didnt want to, and the person looked at me like i was nuts.

whats the saying "in life you can always count on death, taxes, and..... something else
 
Thanks everyone..much obliged.

also,
is it true that any renovation /extension be written up as repairs on the receipts?

Thanks
NO

Repairs are fixing something which is already there which are expenses.

Reno / extension is a capital improvement and needs to be depreciated, you are adding something new.

Cheers
Graeme
 
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